Q: I'm looking for my first home, trying to get a great deal and qualify for the homebuyer's tax credit. A friend told me to look at short sales. My real-estate agent is great, but when I ask her about short sales, she said those aren't her specialty. Is a short sale the same as a foreclosure, and can I find them myself?
As a buyer, you may find a good deal with a short sale, but it is not a simple task to locate and close on a short sale property.
A short sale means that the seller's lender is willing to accept a discounted payoff to release an existing mortgage. A short sale is what people do before a foreclosure, so knowing a little about the differences may be helpful.
With a short sale, the homeowner is the seller and is responsible for the following: employing the listing agent, establishing the pricing, keeping up with maintenance and liabilities.
With a foreclosure, the bank or lender is actually the owner of record and is responsible for the items listed above. With a short sale, the buyer is responsible for back fees and taxes. The bank is responsible for these expenses with a foreclosure.
A lender may consider a short sale even if the homeowner is current with mortgage payments. The value of the home may have fallen so what is owed is more than the home is worth, or the seller may have become unable to afford the home.
The homeowner may accept an offer, but the lender has the final say in what will be accepted. It is unlikely that the bank will approve an offer unless the seller has no equity and is unable to repay the difference between your offering price and the existing loans.
Once an offer is made on a short sale, the response from the lender may take a very long time - four to six months is not unusual. Even if your offer was very reasonable, if market conditions improve during the lender's review process, your offer will probably be rejected. The lender will not pay for a home inspection, so be sure to have cash on hand and state in your offer that it is contingent upon the positive results of a home inspection.
Since short sales take longer to close and may not ever close at your offering price, this may not be a viable option for you. To qualify for the homebuyers' tax credit, you need to have a binding contract in place before May 1, and close before July 1, unless you are in the military. Those in the military and on extended duty outside the United States for 90 days have until June 2011 to close.
If you decide to pursue purchasing a short sale, you may want to seek an agent that is experienced in short sales.
